Philip Morris Investing $680 Million to Make "Reduced-Risk" Tobacco Products

Philip Morris plans its first European Union manufacturing facilities, in Italy.

Philip Morris International (NYSE:PM)announced today that it is investing €500 million ($684 million) in a new manufacturing facility and pilot plant in Italy to test and produce "potentially reduced-risk" tobacco products. Instead of burning tobacco, these products heat the leaves for a potentially less-harmful habit.

This will be Philip Morris' first European Union manufacturing facility, and the company expects annual production capacity to clock in as high as 30 billion units by 2016.

Philip Morris said it has been researching reduced-risk smoking products for more than 10 years. The company is pushing ahead with the products in select cities this fiscal year, with plans for a full market launch in 2015.

Philip Morris International is developing products that heat tobacco in a cigarette with a controlled heating mechanism or that use an aerosol nicotine-delivery system. While two of the technologies heat tobacco instead of burning it, one uses an electronic heater and the other uses a carbon heat source. It plans to pilot test its next-generation products later this year and launch a product that heats tobacco instead of burning it in 2015.

This latest announcement comes on the heels of Philip Morris International's December agreement with Altria Group to hand over global commercialization of Altria's electronic cigarettes to Philip Morris. While Philip Morris is providing Altria two of its heated tobacco products for commercialization in the United States.

While Philip Morris will begin selling Altria's e-cigs outside the U.S. later this year, The Associated Press reported that the company ultimately expects its "next-generation" products to appeal more to smokers than electronic cigarettes.